SCHEDULE 14A INFORMATION
Proxy StatementPursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.____)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PENFORD CORPORATION
Name of the Registrant as Specified In Its Charter
..............................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
......................................................................
(2) Aggregate number of securities to which transaction applies:
......................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
......................................................................
(4) Proposed maximum aggregate value of transaction:
......................................................................
(5) Total fee paid:
......................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
Amount Previously Paid:
...........................................................................
Form, Schedule or Registration Statement No.:
...........................................................................
Filing Party:
...........................................................................
Date Filed:
...........................................................................
<PAGE>
PENFORD CORPORATION LOGO
Bellevue, Washington
December 18, 1998
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
Penford Corporation to be held on Monday, January 25, 1999 at 10:30 a.m. at the
Hyatt Regency Hotel, 900 Bellevue Way NE, Bellevue, Washington. (The corner of
NE 8th & Bellevue Way)
In addition to the items set forth in the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement, we will report on current
activities of the Company and will provide an opportunity to discuss matters of
interest to you as a shareholder.
We sincerely hope you will be able to attend our Annual Meeting. However,
whether or not you plan to attend, please sign, date and promptly return the
enclosed proxy to ensure that your shares are represented.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in Penford Corporation.
Very truly yours,
/s/ Jeffrey T. Cook
JEFFREY T. COOK
President and Chief Executive Officer
<PAGE>
PENFORD CORPORATION
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
January 25, 1999
---------------------
To the Shareholders:
The Annual Meeting of Shareholders of Penford Corporation will be held at
the Hyatt Regency Hotel, 900 Bellevue Way NE, Bellevue, Washington, on Monday,
January 25, 1999, at 10:30 a.m., for the following purposes:
1. To elect four directors;
2. To ratify the selection of Ernst & Young LLP as independent auditors
for the current fiscal year; and
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on December 1, 1998
are entitled to notice of, and to vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan M. Iverson
SUSAN M. IVERSON
Corporate Secretary
December 18, 1998
- -------------------------------------------------------------------------------
IMPORTANT
Whether or not you plan to attend the meeting, please sign, date and return
promptly the enclosed proxy in the enclosed envelope, which requires no postage
if mailed in the United States. Promptly signing, dating and returning the proxy
will save the Company the additional expense of further solicitation.
- -------------------------------------------------------------------------------
<PAGE>
PENFORD CORPORATION
777 - 108th Avenue N.E., Suite 2390
Bellevue, Washington 98004-5193
---------------------
PROXY STATEMENT
---------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Penford Corporation ("Penford" or the
"Company") to be voted at the 1999 Annual Meeting of Shareholders of the Company
to be held at 10:30 a.m. on January 25, 1999. Shareholders who execute proxies
may revoke them at any time prior to their exercise by delivering a written
revocation to the Secretary of the Company, by submission of a proxy with a
later date or by voting in person at the meeting. These proxy materials,
together with the Company's annual report to shareholders, are being mailed to
shareholders on or about December 18, 1998.
Shareholders of record at the close of business on December 1, 1998 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
December 1, 1998, there were outstanding 7,358,022 shares of common stock of the
Company.
SPECIAL NOTE REGARDING SPIN-OFF
On August 31, 1998, the previously announced spin-off of Penwest
Pharmaceuticals Co. ("PPCO") was completed. The 100% tax-free distribution was
the culmination of the original plan announced in October 1997 to foster the
growth potential of the Company's pharmaceuticals business and, separately, its
specialty paper chemicals and food ingredients businesses, which are Penford's
continuing businesses.
In connection with the plan, certain officers of Penford including Tod R.
Hamachek, former President and Chief Executive Officer, and Jack V. Talley, Jr.,
former Vice President, resigned their positions to become officers of PPCO
effective August 31, 1998, the spin-off date. Also effective August 31, 1998,
Mr. Hamachek resigned from the Board of Directors of Penford. Effective
September 1, 1998, former Vice President, Finance and Chief Financial Officer of
Penford, Jeffrey T. Cook, was appointed President and Chief Executive Officer.
Mr. Cook has been appointed to the Board and is nominated for election by
Penford shareholders at the Annual Meeting.
1. Election of Directors
The Board of Directors, consists of eight members and is divided into three
classes. Directors in each class are elected for a three-year term. This year,
Messrs. William G. Parzybok, Jr. and William K. Street have been nominated to be
reelected, and Messrs. Jeffrey T. Cook and John C. Hunter III have been
nominated to be elected for terms that expire at the annual meeting of
shareholders to be held in 2001 and 2002, respectively. Unless a shareholder
indicates otherwise, each signed proxy will be voted for the election of these
nominees. Also, effective the date of the Annual Meeting, Mr. Richard E.
Engebrecht will retire from the Board and the Board of Directors will accept the
resignation of Mr. Paul E. Freiman.
Management expects that each of the nominees will be available for
election, but if any of them is not a candidate at the time the election occurs,
it is intended that the proxies will be voted for the election of another
nominee to be designated to fill any such vacancy by the Board of Directors.
The candidates elected are those receiving the largest number of votes cast
by the shares entitled to vote in the election, up to the number of directors to
be elected. Shares held by persons who abstain from voting on the election and
broker "non-votes" will not be counted in the election.
1
<PAGE>
Nominees for Election
JEFFREY T. COOK, 42, was appointed to the Board of Directors on October 14,
1998 and is nominated for election at the Annual Meeting. Since 1983, Mr. Cook
has held various positions within the Company, most recently as Vice President,
Finance and Chief Financial Officer from 1991 until his appointment as President
and Chief Executive Officer on September 1, 1998. Mr. Cook is the son-in-law of
N. Stewart Rogers.
JOHN C. HUNTER III, 51, was nominated to the Board of Directors on October
14, 1998 pending the election by Penford shareholders at the Annual Meeting. Mr.
Hunter has served as President and Chief Operating Officer of Solutia Inc. since
its spin-off from Monsanto Company in 1997. Solutia Inc. is an international
producer and marketer of a range of high performance chemical-based materials
used by its customers to make consumer, household, automotive and industrial
products. He joined Monsanto Company in 1969. Prior to becoming President and
Chief Operating Officer of Solutia Inc., Mr. Hunter was President, Fibers of
Monsanto Company.
Nominees for Reelection
WILLIAM G. PARZYBOK, JR., 56, has served as a director of the Company since
August 1993. Mr. Parzybok served as Chairman of the Board and Chief Executive
Officer of Fluke Corporation, a manufacturer of electronic test and measurement
instruments, from 1991 to 1998. He was Vice President and General Manager of the
Engineering Applications Group of Hewlett-Packard Company from 1988 to 1991. He
is also a director of WRQ, Inc., SonoSite, Inc. and the Pacific Science Center.
WILLIAM K. STREET, 68, has served as a director of the Company since 1983.
Mr. Street has served as President of The Ostrom Company, growers and
distributors of mushrooms, since 1965. Earlier in his career, he was General
Manager of Elkhorn Ranch, Ltd. and Vice President and General Manager of
Physio-Control Corporation. He serves on the Advisory Committee for the
University of Washington, Tacoma.
The Board of Directors recommends a vote FOR each of the nominees as a director.
Continuing Directors--Term Expires 2000
PAUL H. HATFIELD, 62, has served as a director of the Company since October
1994. Mr. Hatfield served as Chairman, President and Chief Executive Officer of
Petrolite Corporation from November 1995 to July 1997. He was a Vice President
of the Ralston-Purina Company ("Ralston") and President and Chief Executive
Officer of Ralston's wholly-owned subsidiary, Protein Technologies
International, Inc., from 1988 to 1995. He is also a director of DEKALB Genetics
Corporation, Solutia Inc. and Stout Industries.
N. STEWART ROGERS, 68, has served as Penford's Chairman of the Board since
1990 and as a director since 1983. Mr. Rogers served as Senior Vice President of
Univar Corporation, a distributor of industrial and agricultural chemicals, from
1989 to 1992. He is also a director of Penwest Pharmaceuticals Co., VWR
Scientific Products Corporation and Royal Pakhoed, N.V. Mr. Rogers is the
father-in-law of Jeffrey T. Cook.
Continuing Directors--Term Expires 2001
SALLY G. NARODICK, 53, has served as a director of the Company since August
1993. Ms. Narodick serves as Chief Executive Officer of Apex Learning Services,
a distance learning educational software company providing advanced placement
courses to high school students via the Internet. Prior to that, Ms. Narodick
served as an independent educational technology consultant from April 1998 to
October 1998 and as an educational technology consultant to the Consumer
Division of IBM Corporation from December 1996 to March 1998. Ms. Narodick was
Chairman and Chief Executive Officer of Edmark Corporation, an educational
software company, from 1989 to September 1996. She is also a director of Puget
Sound Energy.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICiaL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 1, 1998,
regarding the beneficial ownership of the Company's common stock by any person
known to the Company to be the beneficial owner of more than five percent of
such outstanding common stock, by the directors, by the executive officers named
in the Summary Compensation Table, and by the directors and executive officers
as a group.
<TABLE>
Amount and Nature of
Beneficial Ownership
of Common Stock (1) Percent of
Name (and Address for Beneficial Owners over 5%) Class
- -------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
David L. Babson & Co., Inc. 506,300 6.88%
One Memorial Drive
Cambridge, MA 02142
Wellington Management Company, L.L.P. 500,220 6.80%
75 State Street
Boston, MA 02109
Jeffrey T. Cook 227,041(2) 3.09%
Richard E. Engebrecht 58,340 *
Paul E. Freiman 4,885 *
Tod R. Hamachek 336,178 4.57%
Paul H. Hatfield 29,362 *
Gregory C. Horn 17,008 *
Sally G. Narodick 12,744 *
William G. Parzybok, Jr. 8,165 *
N. Stewart Rogers 168,475(3) 2.29%
Francis C. Rydzewski 52,189 *
William K. Street 52,004(4) *
Jack V. Talley, Jr. 2,692 *
All directors and executive officers as a group (14 persons) 1,110,276 15.09%
</TABLE>
- -------------------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership represents sole voting and
investment power. Includes shares that may be acquired within 60 days
through the exercise of stock options, as follows: Mr. Cook, 60,850; Mr.
Rydzewski, 42,080; Mr. Horn, 15,070.
(2) Includes 73,800 shares held in irrevocable trusts for which Mr. Cook shares
voting and investment power.
(3) Includes 11,538 shares held in irrevocable trusts for which Mr. Rogers has
sole voting and investment power.
(4) Includes 28,128 shares owned by Mr. Street's spouse as to which Mr. Street
disclaims beneficial ownership.
3
<PAGE>
COMMITTEES OF THE BOARD AND DIRECTOR FEES
The Board of Directors has the following standing committees:
Audit and Environmental, Health and Safety Committee -- This committee
consists of Messrs. Engebrecht (Chair), Hatfield and Street and Ms.
Narodick. The committee recommends to the Board the selection of the
independent auditors, reviews the proposed scope of the independent audit,
reviews the annual financial statements and the independent auditor's
report, reviews the independent auditors' recommendations relating to
accounting, internal controls and other matters, reviews internal controls
and accounting procedures with management and approves policies relating to
environmental, health and safety matters.
Compensation and Benefits Committee -- This committee consists of Messrs.
Parzybok (Chair), Freiman and Hatfield. The committee reviews current
remuneration of the directors and the executive officers of the Company and
makes recommendations to the Board regarding appropriate periodic
adjustments of such amounts. The committee also makes recommendations
regarding the Company's benefit plans, the bonus plan and the grants of
stock options to officers and employees under the Company's stock option
plan.
Executive Committee -- This committee consists of Messrs. Rogers (Chair),
Cook, Engebrecht and Freiman. The committee is authorized to exercise all
powers and authority of the Board with certain exceptions.
Nominating Committee - This committee consists of Messrs. Hatfield (Chair)
and Parzybok and Ms. Narodick. The committee proposes candidates to fill
any vacancies and nominees for election by the shareholders at each Annual
Meeting. The Company's Restated Articles of Incorporation allow a majority
of disinterested directors (generally, directors who are not affiliated
with any shareholder owning 5% or more of the Company's outstanding voting
stock) or persons beneficially owning 1% or more of the outstanding shares
of voting stock when cumulative voting is in effect as a result of a
shareholder owning 40% or more of the Company's outstanding voting stock to
nominate candidates for election as a director and to have information
relating to such nominees included in the Company's proxy statement. The
procedures to be followed in the case of any such nomination are set forth
in the Bylaws of the Company. The committee also makes recommendations for
other committee appointments.
Pension Committee - This committee consists of Ms. Narodick (Chair) and
Messrs. Rogers and Street. The committee makes recommendations to the Board
regarding the Company's retirement plans, directs the investment, directly
or indirectly through trustees or investment managers, of the assets of
such plans and reviews investment manager performance.
The Audit and Environmental, Health and Safety Committee met one time; the
Compensation and Benefits Committee met three times; the Nominating Committee
met one time; neither the Executive Committee nor the Pension Committee met
during fiscal year 1998; and the Board of Directors met nine times during the
fiscal year ended August 31, 1998. An ad hoc Committee, consisting of Messrs.
Rogers and Parzybok and Ms. Narodick, was appointed by the Board to facilitate
certain transactions directly related to the spin-off. This committee met two
times. All directors attended 75% or more of the aggregate number of Board
meetings and meetings of committees on which they served.
4
<PAGE>
Non-employee directors were compensated during the last fiscal year as
follows:
<TABLE>
<S> <C>
Annual retainer for Chairman of the Board of Directors............................ $30,000
Annual retainer as a director..................................................... 9,000
Annual retainer as Chair of the Executive Committee............................... 4,000
Annual retainer as Chair of all other standing committees......................... 2,000
Fee for each meeting of the of Board of Directors attended........................ 1,000
Fee for each meeting of the Board of Directors attended when held out of state of 2,000
director's residence...........................................................
Fee for Chair of each standing committee for each meeting attended................ 1,000
Fee for member of each standing committee for each meeting attended............... 1,000
Reimbursement for all reasonable expenses incurred in attending Board
or committee meetings
</TABLE>
Under a deferred compensation plan, non-employee directors may elect to defer
with interest all or part of such compensation.
Non-employee directors also receive restricted stock under the 1993
Non-Employee Restricted Stock Plan. The plan provides that every three years
each non-employee director will be awarded $18,000 worth of common stock of the
Company, based on the last reported sale price of the stock on the preceding
trading day. A person who becomes a non-employee director after a September 1 on
which an award was made will be awarded the number of shares determined by
dividing the amount equal to $18,000 minus the product of $500 times the number
of months since such September 1 by the last reported sale price of the stock on
the trading day next preceding the award date. A non-employee director may sell
or otherwise transfer one-third of the shares covered by an award on each
anniversary of the date of the award. If a non-employee director ceases to be a
director before the restrictions against transfer have lapsed with respect to
any shares, then, except in certain circumstances, the director must forfeit
such shares.
In addition, non-employee directors receive stock options under the Stock
Option Plan for Non-Employee Directors. The plan provides that on each September
1, each non-employee director will be granted an option to purchase the number
of shares of the Company's common stock equal to $10,000 divided by 25% of the
fair market value of a share of such stock on such date. The exercise price is
75% of the fair market value of a share of such stock on the grant date. If a
non-employee director will not serve during the full fiscal year due to
retirement, then a pro rata award will be made. Accordingly, on September 1,
1997, each non-employee director was granted an option to purchase 1,406 shares
of common stock. Each non-employee director also may elect to receive during a
fiscal year a stock option in lieu of director cash compensation for that year.
Grants of these options, if so elected, occur quarterly. The number of shares
subject to each option is equal to the amount of compensation (retainer, meeting
and committee fees) payable to the non-employee director as of the quarterly
date divided by 25% of the fair market value of a share of the Company's common
stock on the grant date. The exercise price for these deferred compensation
options is 75% of the fair market value of a share of such stock on the grant
date. In fiscal 1998, the following non-employee directors elected to receive
such options in lieu of director cash compensation: Messrs. Engebrecht,
Hatfield, Rogers and Street. Unless an option granted under the plan is
terminated or its exercisability is accelerated in accordance with the plan upon
the occurrence of certain events (including a change of control), the option is
exercisable six months after its grant date. The options terminate at the
earlier of ten years after the date of grant or three years after the date the
non-employee director ceases to be a member of the Board.
The Company loaned Tod R. Hamachek, former President and Chief Executive
Officer, $1.2 million in connection with his relocation to PPCO. The loan is
secured by real estate and the interest charged is equal to
5
<PAGE>
Penford's overnight borrowing rate. The full amount of the loan remains
outstanding as of December 1, 1998 and is due in full no later than March 1,
1999.
EXECUTIVE COMPENSATION
Compensation paid by the Company during fiscal years 1998, 1997 and 1996
for the Chief Executive Officer and the other four most highly compensated
executive officers is set out in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term
Compensation
Annual Compensation Awards
--------------------------------------- ---------------
Securities
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($)(2) ($)(3) # ($)(4)
- ------------------------------------ ------- ---------- ---------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek(1)
President and Chief Executive 1998 340,000 89,325 0 0 20,426
Officer......................... 1997 340,000 453,934 0 96,000 16,529
1996 340,000 123,967 0 0 22,174
Jeffrey T. Cook(1)
Vice President, Finance and 1998 211,700 113,438 0 0 11,824
Chief Financial Officer......... 1997 155,000 129,813 0 14,500 8,148
1996 152,000 37,793 0 0 10,991
Francis C. Rydzewski
Vice President.................. 1998 225,000 96,750 0 0 11,877
1997 205,000 127,408 0 19,000 8,927
1996 187,500 52,072 0 0 7,000
Gregory C. Horn
Vice President.................. 1998 171,250 126,000 0 0 11,826
1997 160,000 66,003 0 14,500 7,992
1996 160,000 15,570 0 0 10,866
Jack V. Talley, Jr. (1)
Vice President.................. 1998 207,500 56,895 0 0 10,792
1997 185,000 103,896 0 19,000 8,361
1996 180,000 58,183 0 0 9,785
</TABLE>
- ------------------------------------
(1) Mr. Hamachek resigned as President and Chief Executive Officer on August
31, 1998 and Mr. Cook was appointed President and Chief Executive Officer
on September 1, 1998. Mr. Talley resigned as Vice President on August 31,
1998.
(2) Reflects bonuses earned during the fiscal year, but paid in the next fiscal
year.
(3) These amounts represent the portion of interest earned on deferred
compensation above 120% of the applicable federal rate for the fiscal year.
(4) These amounts represent the Company's matching and profit sharing
contributions under the Penford Corporation Savings and Stock Ownership
Plan and premiums paid on behalf of the named executive officers for
supplemental life and disability insurance plans.
The Company has a stock option plan pursuant to which options to purchase
common stock are granted to officers and key employees of the Company. The plan
is administered by the Compensation and Benefits Committee of the Board of
Directors, which determines to whom the options are granted, the number of
shares subject to each option, the type of option, the vesting schedule and the
exercise price. The plan and related agreements contain provisions that, in
certain circumstances, may cause the date of exercise of such option to
accelerate upon a change of control of the Company.
6
<PAGE>
In September 1998, subsequent to the spin-off of PPCO, Penford approved the
grant of options under its stock option plan covering an aggregate of 370,000
shares of common stock to a group of executives including Mr. Cook, 125,000
shares, Mr. Rydzewski, 60,000 shares and Mr. Horn, 50,000 shares. These options
have an exercise price equal to the fair market value of Penford common stock at
the open of trading on the day immediately following the spin-off.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
Shares Number of Value of Unexercised
Acquired Value Unexercised Options in-the-Money Options
on Exercise Realized at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
-------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek(2) -0- -0- 34,000 62,000 294,500 523,500
Jeffrey T. Cook 500 7,313 21,875 62,125 82,313 331,688
Francis C. Rydzewski -0- -0- 13,750 20,250 89,750 148,500
Jack V. Talley(2) -0- -0- 12,750 56,250 68,000 341,500
Gregory C. Horn 15,625 222,969 3,000 45,875 22,125 279,500
</TABLE>
- ------------------------------
(1) Values are calculated by subtracting the exercise price from the fair
market value of the stock as of the fiscal year end.
(2) Effective September 1, 1998 all outstanding Penford options held by Messrs.
Hamachek and Talley were converted to PPCO options.
RETIREMENT BENEFITS
<TABLE>
Benefits Computed Without Consideration of IRS Maximums for Qualified Retirement Plans
-----------------------------------------------------------------------------------------------
Five-Year Average Years of Service
--------------------------------------------------------------------
Compensation (1) 15 20 25 30
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$200,000 $ 42,665 $ 56,887 $ 71,109 $ 85,331
300,000 65,165 86,887 108,609 130,331
400,000 87,665 116,887 146,109 175,331
500,000 110,165 146,887 183,609 220,331
600,000 132,665 176,887 221,109 265,331
700,000 155,165 206,887 258,609 310,331
800,000 177,665 236,887 296,109 355,331
900,000 200,165 266,887 333,609 400,331
</TABLE>
(1) Represents the highest average annual earnings during five consecutive
years of service.
The Company has a defined benefit retirement plan (the "Retirement Plan").
The table above shows the estimated annual benefits payable at retirement under
the Retirement Plan to persons in the specified compensation and years of
service classifications. The retirement benefits shown are based upon retirement
at age 65 and the payments of a single-life annuity to the employee using
current average Social Security wage base amounts and are not subject to any
deduction for Social Security or other offset amounts. The Plan's formula limits
years of service to 30 years. With certain exceptions, the Internal Revenue Code
restricts to an aggregate amount of $125,000 (subject to cost of living
adjustments) the annual pension that may be paid by an employer from a plan
which is qualified under the Code. The Code also limits the covered compensation
which may be used to determine benefits to $160,000. The Board of Directors has
established supplemental benefits for certain highly compensated employees to
whom this limit applies, or will apply in the future, so that these employees
will obtain the benefit of the formula that would have applied in the absence of
the limitation. The named executive officers entitled to receive supplemental
benefits as of August 31, 1998 were Messrs. Hamachek, Cook, Rydzewski, Talley
and Horn.
All permanent employees not members of the collective bargaining unit are
eligible to participate in the Retirement Plan. Compensation covered by the
Retirement Plan includes salaries and bonuses.
7
<PAGE>
As of August 31, 1998, the approximate years of credited service (rounded
to the nearest year) under the Retirement Plan of the named executive officers
were: Mr. Hamachek, 15; Mr. Cook, 17; Mr. Rydzewski, 4; Mr. Talley, 5; and Mr.
Horn, 5.
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of Penford's Board of Directors
(the "Committee") is comprised of non-employee, outside directors. The Committee
is broadly charged by the Board of Directors with the following
responsibilities:
o Establishing compensation and incentive programs that are directly
tied to the long-term financial performance of Penford, including a
balanced combination of targets requiring the achievement of
short-term operating goals and longer-term strategic objectives.
o Encouraging meaningful levels of Penford stock ownership for key
personnel.
o Directing and monitoring the Company's benefit plans for all Penford
employees.
Following review and approval by the Committee, issues pertaining to
executive compensation are submitted to the full Board of Directors for approval
or ratification.
Penford maintains the philosophy that compensation of its executive
officers should be directly and materially linked to the long-term results
shareholders receive.
The executive compensation program consists of base salary, an incentive
compensation program based on predetermined profit and cash flow goals as well
as certain qualitative objectives and stock-based incentive programs.
Base Salary
The Committee uses outside consultants to identify competitive salary
grades and ranges. The Committee directs the outside firm to consider similar
sized companies (based on market capitalization), geographic factors, similar
market-related companies, and growth profiles of other companies. These
competitive standards are reviewed every twelve months and are targeted towards
the 50th percentile of the companies surveyed. In addition, an executive
officer's performance and potential, as well as changes in duties and
responsibilities, are factors that may be considered in adjusting base salaries.
Incentive Compensation
This program is an annual cash payout dependent on achieving predetermined
profit and cash flow goals as well as certain qualitative objectives. Penford's
Board of Directors believes strongly that a balanced combination of targets
requiring the achievement of short term operating goals and longer-term
strategic objectives translates directly into increasing the long-term value of
Penford stock. Individual incentive compensation target awards are determined by
salary grade and are subject to an adjustment based on individual performance.
The highest individual target payout is 55% of an individual's base salary, and
the lowest individual target payout is 20%. Payouts can exceed targets when
quantitative and qualitative targets are exceeded.
Stock Based Incentive Programs
The Board of Directors strongly encourages all executive officers of
Penford to build a significant ownership position, over time, in Penford common
stock. All stock options to executive officers have been granted
8
<PAGE>
at market price. Options under the stock-based incentive programs offered by
Penford consist of five-year term incentive stock options, and five-year and
ten-year term non-qualified stock options.
The amount of stock option shares granted under any given program is
calculated based on a potential long-term total return to shareholders versus
the potential long-term return to the option holder for performance in
increasing the value of Penford stock. Factors such as dilution of existing
shareholders and existing open market stock buyback programs are taken into
account.
Supplemental Benefit Plans
Supplemental Benefit Plans for executive officers and other key personnel
include a supplemental retirement plan, deferred compensation plan, and survivor
benefit life and disability plan. These plans are designed to be competitive
with other plans for comparably sized companies and to attract and retain highly
qualified management.
CEO Compensation
Effective August 31, 1998, Mr. Hamachek resigned his position as President
and Chief Executive Officer of the Company, and Mr. Jeffrey T. Cook was
appointed his successor effective September 1, 1998. As discussed above,
Penford's executive cash compensation program includes a base salary and a
Company performance-based incentive compensation program. Mr. Hamachek and Mr.
Cook participate in the same incentive program applicable to the other named
executive officers. The Committee's objective is to correlate the CEO's
remuneration with the performance of Penford. Both Mr. Hamachek's and Mr. Cook's
entire performance related pay for fiscal years 1998, 1997 and 1996 was paid
under the incentive program. Such pay is adjusted to reflect the level of target
achievement for that particular fiscal year. Base salary is reviewed every
twelve months for executives in an effort to maintain market competitiveness.
Mr. Hamachek`s last base salary increase was in April 1997 and Mr. Cook's last
base salary increase was in February 1998. In addition, Mr. Cook is a large
shareholder in the Company, and to the extent his performance as President and
Chief Executive Officer translates into an increase in the value of the
Company's stock, all shareholders, including him, share the benefits.
William G. Parzybok, Jr., Chair
Paul E. Freiman
Paul H. Hatfield
9
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its common stock for a five-year period (August 31, 1993 to August 31,
1998) with the cumulative total return of the Nasdaq Market Index, the Media
General Group Index of Specialty Chemical Companies, and all companies traded on
Nasdaq with a market capitalization of $150 - $250 million, excluding financial
institutions. The graph assumes that $100 was invested on August 31, 1993 in the
Company's common stock and in the stated indices. The comparison assumes that
all dividends are reinvested.
[PERFORMANCE GRAPH]
<TABLE>
Company/Index/Market 1993 1994 1995 1996 1997 1998
-------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Penford Corporation 100.00 131.94 141.42 103.27 186.34 155.09
MG Specialty Chemicals 100.00 111.15 114.59 115.85 138.50 114.88
Nasdaq 100.00 109.26 130.01 145.98 202.06 196.25
Nasdaq Market Cap 100.00 93.86 129.52 125.46 148.87 97.90
</TABLE>
10
<PAGE>
2. Ratification of Selection of Independent Auditors
The Board of Directors requests that the shareholders ratify its selection
of Ernst & Young LLP, Certified Public Accountants, as independent auditors for
the Company for the current fiscal year. If the shareholders do not ratify the
selection of Ernst & Young LLP, another firm of certified public accountants
will be selected as independent auditors by the Board.
Representatives of Ernst & Young LLP will be present at the meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the selection
of Ernst & Young LLP as independent auditors for fiscal year 1999.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has change-of-control agreements with the following executive
officers as of December 1, 1998: Messrs. Jeffrey T. Cook, Francis C. Rydzewski,
Gregory C. Horn and Robert G. Widmaier. Each agreement provides that the
executive will receive compensation for 30 months if his employment is
terminated by the Company upon a change of control for any reason other than
gross misconduct, death, disability or reaching age 65, or if he terminates his
employment following (i) the assignment to him of responsibilities or title
materially less than his responsibilities and title prior to a change of
control, (ii) the reduction in the aggregate of his salary and bonus or (iii) a
material breach by the Company of the agreement, provided such termination
occurs within 24 months after certain defined events which might lead to a
change in control of the Company. The compensation will be paid at a rate equal
to the executive's then current salary and target bonus. The compensation is
subject to a minimum annual rate of not less than the executive's average
compensation for the preceding three calendar years and is subject to reduction
if the aggregate present value of all payments would equal or exceed three times
the executive's "base amount," as defined in Section 280G of the Internal
Revenue Code. The executive also will continue to have "employee" status for the
30-month period and will retain most employee benefits during this period. The
amount to be paid is reduced by amounts received by the executive from other
employers during the 30-month period.
The estimated aggregate amounts presently payable in the event of a change
of control (assuming each executive receives payments for the maximum 30-month
period) would be: Mr. Cook, $968,750; Mr. Rydzewski, $843,750; Mr. Horn,
$612,500; and Dr. Widmaier, $511,000. This does not include the value of
employee benefits that might be payable to the executive during the 30-month
period. The value of these benefits cannot be calculated at this time.
Continuation of these benefits would include participation in the Company's
health and welfare plans and policies, continued vesting of stock options, and
continuation of years of service for pension and other retirement plan benefit
computation purposes.
SHAREHOLDER PROPOSALS
Under Rule 14a-8(3) of the Securities and Exchange Commission, shareholder
proposals intended for inclusion in next year's proxy statement must be directed
to the Corporate Secretary at Penford Corporation, P.O. Box 1688, Bellevue,
Washington 98009-1688, and must be received by August 26, 1999. Any shareholder
proposal for next year's annual meeting submitted after August 26, 1999 will not
be considered filed on a timely basis with the Company under SEC Rule
14a-4(c)(1). For proposals that are not timely filed, the company retains
discretion to vote proxies it receives. For proposals that are timely filed, the
Company retains discretion to vote proxies it receives provided (1) the Company
includes in its proxy statement advice on the nature of the proposal and how it
intends to exercise its voting discretion and (2) the proponent does not issue a
proxy statement.
11
<PAGE>
SOLICITATION OF PROXIES
The proxy card accompanying this proxy statement is solicited by the Board
of Directors. Proxies may be solicited by officers, directors and other
employees of the Company, none of whom will receive any additional compensation
for their services. Representatives of Corporate Investor Communications also
may solicit proxies as a part of the services it provides for the Company.
Solicitations of proxies may be made personally, or by mail, telephone,
telegraph, facsimile or messenger. The Company will pay persons holding shares
of common stock in their names or in the names of nominees, but not owning such
shares beneficially, such as brokerage houses, banks and other fiduciaries, for
the expense of forwarding soliciting materials to their principals. All costs of
soliciting proxies will be paid by the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
The federal securities laws require the Company's directors and executive
officers, and persons who own more than ten percent of the Company's common
stock to file with the Securities and Exchange commission initial reports of
ownership and reports of changes in ownership of any securities of the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended August 31, 1998, all of the
Company's directors, executive officers and greater-than-ten percent beneficial
owners made all required filings.
OTHER MATTERS
The Company is not aware of any other business to be acted upon at the
meeting. If other business requiring a vote of the shareholders should come
before the meeting, the holders of the proxies will vote in accordance with
their best judgment.
December 18, 1998
A copy of the Company's Annual Report on Form 10-K for fiscal year 1998,
containing information on operations, filed with the Securities and Exchange
Commission, is accessible on the Company's website at www.penx.com or is
available upon written request. Please write to: Investor Relations, Penford
Corporation, Post Office Box 1688, Bellevue, Washington 98009-1688.
12
<PAGE>
PROXY
For the Annual Meeting of the Shareholders of
PENFORD CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
The undersigned hereby appoints Jeffrey T. Cook and Susan M. Iverson,
and each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held on January 25, 1999 and at any adjournment thereof.
(Continued and to be signed on the reverse side)
................................................................................
FOLD AND DETACH HERE
13
<PAGE>
<TABLE>
FOR NOT FOR FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C>
1. Election of Directors: [ ] [ ] 2. Ratification of selection of Ernst & [ ] [ ] [ ]
Jeffrey T. Cook, John C. Hunter, III, Young LLP as independent auditors for
William P. Parzybok, Jr. the Company.
and William K. Street
Except vote withheld from following nominee(s) 3. In their discretion, the proxies are
listed in space at right: ------------------ authorized to vote upon such other business
as may properly come before the meeting.
I plan to attend the meeting. [ ]
This proxy, when properly signed
will be voted in the manner
directed herein by the undersigned
shareholder. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE
NOMINEES NAMED IN PROPOSAL 1
AND FOR PROPOSAL 2.
IMPORTANT -- PLEASE SIGN AND
RETURN THIS PROXY PROMPTLY.
When shares are held by joint
tenants, both should sign.
When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate
name by President or other
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.
Signature(s)----------------------------------------------------------- Dated -------------------
..................................................................................................................................
</TABLE>
FOLD AND DETACH HERE
14
